Fuel tax could cut emissions / U.S. should follow lead of German, Japanese policies

Craig Morris

Published 4:00 am, Sunday, December 17, 2006

Gov. Schwarzenegger could take a lesson from Germany if he's really serious about attaining his tough, new air-quality goals.

In September, the governor signed into law the Global Warming Solutions Act, AB32, which stipulates that by 2020 the state will cut its emissions of greenhouse gases to 1990 levels, a 25 percent decrease from today's levels. Sounds good, but targets can be missed. The mechanisms to meet the targets are therefore crucial.

Germany found that one way to do that was to impose an "ecotax." To improve fuel economy, Germany simply raised the price of gas with this surcharge.

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Countries like France, the Netherlands and Germany already charged around $6 per gallon, but Germany raised the price by an additional 10 cents a year from 1999 to 2003. Germans now pay nearly $6.50 per gallon. The increase was not steep (less than 2 percent per year), but it sent a signal to the market that gas would not be getting any cheaper.

No one told carmakers what to build or German consumers what to buy, but the announcement of small, gradual price increases allowed people to plan in a way that sudden shocks -- like the 50 percent increase in U.S. gas prices after hurricanes Katrina and Rita -- do not. Germans had time to react to higher prices by deciding to switch to a more fuel-efficient car, driving less, carpooling, taking public transit, cycling or walking. And those who wanted the thrill of driving a sport utility vehicle on the autobahn could still do so if they had the cash.

By 2004, fuel consumption had dropped by around 7 percent from 1999 levels; 6 percent more Germans were riding public transport; and cars with nearly 80 miles per gallon fuel efficiency hit the market. Yes, 80 mpg. That's not a typo; it's a Volkswagen Lupo. And unlike the two-seater Smart, with 69 mpg, the Lupo (like Audi's classy A2 with 78 mpg) is a four-seater.

Now compare the success of Germany's ecotax to American fuel-efficiency standards. The American standards, designed to raise the average mileage of new cars, basically tell automakers how to build cars. But the standards didn't increase average miles per gallon dramatically in the late 1970s and early 1980s, skyrocketing gas prices after two oil crises did. Once gas prices fell and remained low, the standards had little effect. In fact, the average fuel economy of all vehicles on the road has not moved much since 1987. The 1927 Ford Model A would meet today's fuel-efficiency standards.

Is anyone here watching Europe's success? Yes, Al Gore has been calling for a carbon tax for months. He wants to use the revenue to offset payroll taxes -- exactly what Germany has been doing since 1999. But when MSNBC reported on Gore's idea, it called it a "novel approach" -- no mention of Germany's success.

Of course, many Americans are calling for higher fuel-efficiency standards -- but that's the bad news. These standards are by their very design doomed to failure because efficiency can ironically undercut itself by making consumption cheaper. Think about it: if you could suddenly drive 100 miles longer on one tank of gas, would you drive less or more? When efficiency lowers consumption, demand for energy drops, lowering prices, which in turn undercuts investments in efficiency -- a catch-22 without price mechanisms.

Targets don't work if they are unrealistic. In 1990, California told automakers and consumers that it wanted 10 percent of the vehicles sold in the state by 2003 to be zero-emission, but the cars didn't sell in great enough numbers, and the project failed. Battery-powered cars leave much to be desired, and fuel-cell cars are still not ready for the market.

The Japanese have a more clever system of targets based on what industry demonstrates to be possible: the average efficiency is determined for a type of car, say four-door sedans, and the least-efficient products must be improved every year. That won't bring sudden, dramatic improvement, but over a few years, it would make a significant difference. Oh, did I mention that gas prices in Japan are nearly twice as high as in the United States?

Unfortunately, we don't look at Japan and Europe enough. Otherwise, we would have seen Japanese hybrids coming while we were still focused on zero-emission cars.

The press release for California's Global Warming Solutions Act calls it a "first-in-the-world comprehensive program." It also later states that the mechanisms to reach the target must be specified by Jan. 1, 2009. So California has set a target without mechanisms. I say: Forget about targets, stop acting like we are the world leaders, and start copying the mechanisms of those who are. America, it's time to play catch-up, not catch-22.

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